05. Aug 15

Delayed filing for insolvency: Liability of managing director

If there is a delay in filing for insolvency, the managing director of a GmbH is liable. According to the German Federal Court of Justice (Bundesgerichtshof (BGH)) in its judgment of December 18, 2014, this also applies to a de facto managing director.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: In the instant case, the de facto and the actual managing directors of a GmbH were convicted by the Regional Court of Dortmund for deliberately delaying filing for insolvency and aiding and abetting in delaying filing for insolvency. The appeal was dismissed by the BGH (Az. 4 StR 323/14 and 4 StR 324/14).

The Karlsruhe judges pointed out that the long-standing jurisprudence of the BGH recognising the criminal liability of the de facto managing director where there is a failure or a delay in filing for bankruptcy or insolvency remains valid, even in light of the reorganisation of sec. 15a para. 4 of the German Insolvency Code (Insolvenzordnung). According to this, those who incorrectly, belatedly or omit to submit an insolvency application will be punished. An insolvency application needs to be submitted by the representative bodies of an insolvent or over-indebted legal person without undue culpable delay, but no later than three weeks after insolvency has occurred or said legal person has become over-indebted. The judges stated that de facto managing directors are not exempt from this.

The punishments for delayed filing for insolvency can be considerable, ranging from financial penalties to custodial sentences.

Managing directors are essentially tasked with conducting business for the good of the company. They cannot be legally charged for economic failure resulting from this. However, the situation is different if they have breached their obligations as managing directors. They can then be faced with damages claims.

The obligations of a managing director include managing the economic and financial affairs of the business. If he neglects this responsibility, he might render himself liable vis-à-vis the company (internal liability). Excessive risk, disregarding instructions of the partners and, of course, fraud and breach of trust are examples of relevant breaches of duty.

The managing director is subject to external liability if he, for instance, fails to ensure that social security contributions or taxes are duly paid. Furthermore, he is obligated to file for insolvency in due time if the circumstances so require. If he breaches these obligations, he may be faced with claims for damages from third parties (external liability).

The contract between the company and the managing director is crucial to reducing the risk of liability. That is why lawyers who are experienced in the field of company law ought to be consulted when drafting agreements.

For more informations: http://www.grprainer.com/en/legal-advice/company-law/managing-director.html

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